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The Morgan Hill City Council took a few more steps toward completing the redevelopment of downtown Oct. 7, but at least one resident wonders if it’s worth the cost.

Mayor Steve Tate called the items a “realization of a dream,” after the council unanimously approved the sale of the Downtown Mall to developer Frank Leal, a commercial/residential development agreement with City Ventures on the Depot Center site, and a lease agreement for future retail space to be built on East Third Street.

However, bewildered Morgan Hill resident Frank Manocchio believes the growing costs—and net losses in property sales—are more of a nightmare than a dream.

“I’m upset or disappointed that the city staff report doesn’t include the real costs to the citizens of Morgan Hill,” Manocchio said. “We’re almost at $11 million of taxpayer money (spent on the properties), and Mr. Leal is spending $1.4 million. We’re giving it away.”

Tate has been mayor since before 2008, when the city and the Redevelopment Agency drew up the Downtown Specific Plan and other documents that spelled out City Hall’s long-term effort to revitalize the downtown neighborhood with a mix of commercial and residential uses.

Properties discussed at the Oct. 7 meeting were purchased by the RDA in 2008 and 2009. The RDA was closed by the state in 2012, and the city (along with other public agencies that share in the post-RDA spoils) must now sell them in order to gain the new developments it prefers.

But the properties are being sold for a fraction of what the RDA paid for them, and in one case the city has offered additional cash assistance to the developer.

The Downtown Mall, for example, will be sold to developer Frank Leal for $1,140,524—a price the council approved Oct. 7. On Sept. 2, the council sold the next-door Granada Theater property to Leal for $294,476.

Plus, the council in September agreed to give Leal about $700,000 in development assistance to renovate the Granada as a full-time entertainment venue.

In 2008, the RDA paid more than $10.3 million for these properties, which have sat unimproved and undeveloped since then.

Mayor Pro Tem Larry Carr said after the Oct. 7 meeting that the council is committed to the downtown plan that “the community of Morgan Hill has talked about for a decade,” and anticipates making money on the completed projects in the form of new tax revenues.

This plan—which places strict land use guidelines on downtown properties—also includes construction projects underway downtown, such as the Fourth Street Garage and street improvements on Monterey Road and side streets.

“When redevelopment money—not general fund tax money—was used to purchase these properties, it was for very specific purposes; not to sell it off to the highest bidder, and not to try to flip it,” Carr said. “And those (reasons) are what is being realized with the actions last night.”

Developers eager to join downtown efforts

City staff did note that Leal’s project at the Downtown Mall site will cost the developer about $13 million, and he is not seeking public funds. His proposal, working with Weston Miles Architects, is to demolish the Downtown Mall and build a three-story complex that houses a restaurant and market hall (14,000 square feet) along with a flower shop on the ground floor. Upstairs would be a boutique hotel (up to 60 rooms) with a 400-person capacity conference room as well as a spa.

The project will be a “centerpiece in downtown Morgan Hill,” city staff said. Leal’s neighboring Granada Theater renovation will “broaden and deepen” Morgan Hill’s reputation as a destination for entertainment, dining and other types of visits, city staff added.

The sale price for the entire block is based on an Aug. 3 appraisal of the property, Assistant City Manager Leslie Little said.

Another downtown property where the city has taken a loss from what the RDA spent on it is the Depot Center, or BookSmart shopping center. Developer City Ventures purchased the former RDA’s option on the property for $100,000. The RDA spent $1.7 million on that option in 2010.

City Ventures has not yet completed the purchase of the property (projected to cost the developer another $2 million). But at the Oct. 7 meeting Phil Kerr of City Ventures presented their development plan for the site, which the council also approved unanimously.

Those plans call for 5,557 square feet of commercial space on East Third Street, about 2,000 square feet of “live/work” commercial space on Depot Street and 29 residential townhome units. Parking on site will be limited to residents, and Kerr noted that ample visitor parking will be available at public parking lots on Depot Street and the new Fourth Street Garage when it is completed.

The project will consist of six multi-story buildings, with public pedestrian walkways intersecting the property in two directions.

Leasing underway for future Third Street retail

The third significant action related to downtown improvements taken by the council Oct. 7 is a “master lease” agreement with Imwalle/Rodrigues Properties related to the future retail space to be built on the Third Street side of the parking garage.

Doing business as 3rd Street Garage Retail LLC, Imwalle/Rodrigues will be the city’s “master tenant” on the site, and will be responsible for maintaining a new public outdoor plaza that will connect the sidewalk to the garage entrance and nearby businesses.

City staff said this agreement will save the city “hundreds of thousands of dollars” in tenant improvements that the master tenant will finance instead.

Imwalle/Rodrigues was also selected by the council earlier this year as the developer for the former liquor store property at the corner of Third Street and Monterey Road. That’s another former RDA property that the city sold at a significantly lower price. Imwalle/Rodrigues paid $525,000 cash for the property, and the RDA paid about $1.7 million for it in 2008. The developer plans to build a mixed-use project with two restaurants and other retail/commercial space.

All uses of former RDA properties and cash since the agency was shut down three years ago require the approval of the state Department of Finance, in an effort to ensure the assets are used for their original purpose and return future tax revenues to the general funds of the city, county, school district, community colleges and other public agencies.

Once Leal’s hotel and theater projects are complete, for example, city staff anticipate general fund revenues of about $294,000 annually, in the form of sales, property and hotel taxes.

Leal is a regional veteran of the hospitality industry, as the owner of Leal Vineyards in Hollister and Willow Heights Mansion in Morgan Hill.

“We now have private investment willing to put millions of dollars into our downtown, create jobs and take our downtown to the next level,” Carr said. “It’s going to provide new places for people to go and to gather, attract more people the existing businesses, and it’s going to improve our tax base.”